South African mining industry to promote Africa economic development

Date: 2012-04-20

Tag:
African, economic, development

Summary: The host of the world’s largest mineral reserves, worth $2.5-trillion, is thus seen to be at a point where decisive action is necessary.

The South African mining industry – a mainstay of the country’s $357- billion economy, the biggest in Africa as well as the basis of this country’s industrialisation – is at a crossroads, says Webber Wentzel partner and Africa mining and energy projects head Peter Leon, who is also the immediate past chairperson of the International Bar Association’s mining law committee.

The host of the world’s largest mineral reserves, worth $2.5-trillion, is thus seen to be at a point where decisive action is necessary.

While conceding that South African mining’s precipitous decline does not create a pretty picture, Leon points out that, at the same time, the Department of Mineral Resources’ (DMR’s) new mining cadastre system and audit of rights and the prospect of significant amendments to the Mineral and Petroleum Resources Development Act (MPRDA) may well presage a significantly better future for South African mining.

But, in the meantime, the industry that distributes hundreds of billions of rands a year to suppliers, employees, communities, the South African taxman and its own mines in the form of capital expenditure – with only 7% going to shareholders – is squandering its once-impressive mineral inheritance.

Despite the longest commodities boom in history, South Africa’s output is falling and its contribution to national economic growth is flat.

South Africa is simply not exploiting its pre-eminent position, despite being nearly a trillion dollars ahead of Russia, its closest mineral resources rival with reserves worth $1.6-trillion.

A shrinking in consecutive quarters has thrown the mining sector into recession and a series of court cases has just added to the concern.

The rate of new investment growth is the lowest of any significant mining jurisdiction and negatives continue to dominate at production level, but again amidst a glimmer of hope in the form of growing State willingness to invest in mine- supporting infrastructure.

February production registered a 14.5% year-on-year fall, the biggest since the 16.8% March 2008 slump.

In the face of all this, investors are continuing to avoid South Africa at a time when rival mining jurisdictions remain on the ascendancy.

In lamenting the parlous state of South African mining, one needs to recall the positives of South African mining’s heyday to show what may be attainable once more.

National Planning Commissioner and former AngloGold Ashanti CEO Bobby Godsell gave a glimpse of South Africa’s former mining highpoints – and also the heart-breaking low points – at last month’s ninetieth anniversary celebrations of the University of the Witwatersrand.

South Africa, he reminded, was once a centre of thought leadership in gold and diamond mining and the place where mining of the deepest level, the narrowest vein and the hardest rock in human history was pioneered.

It was also at the forefront of a succession of metallurgical revolutions and geological advances.

Deputy President Kgalema Motlanthe – himself a former mineworker – added another glimmer of hope at last week’s Presidential Infrastructure Coordinating Commission (PICC) dialogue, which is prioritising South Africa’s northern mineral belt as one of its 17 strategic integrated projects.

On the sad side of mining remains the high level of fatalities, which continue to afflict South Africa, and Godsell made the point that mining’s cost to the country in blood and human lives was so great that it deserved to be commemorated at the level of the Vietnam War Memorial in Washington, which recognises each victim by name.

The Commission of Inquiry into Safety and Health in the Mining Industry, headed by judge Ramon Leon, reported in 1995 that some 69 000 people had been killed in South Africa’s mining industry in the twentieth century and one-million seriously injured, maimed and physically damaged – horrifying numbers.

Although the CEOs of South African mining companies have determined that 2013 will be the year in which South Africa’s mine safety is on a par with the mine safety in industrialised countries like Canada, the US and Australia, author of the mine-safety work, Falling Ground, Dr Philip Frankel, has expressed scepticism that the 2013 safety target will be attained, let alone sustained.

While the lack of safety continues to haunt the industry, there are many shallow and thus far safer regional mining pursuits that could create much-needed regional wealth and employment, but which are not going ahead because of the absence of investor confidence that the poor legislative environment perpetuates.

At the same time, resource nationalism is gathering apace, not only in South Africa, but, as Leon notes, in the Southern African region as a whole.

While Zimbabwe’s indigenisation regulations have made the main headlines, Zimbabwe is not the only country in the region that is presenting new investment paradigms.

This means that Namibia’s State-owned mining company, Epangelo, will in future hold exclusive exploration and mining rights to these strategic minerals and investors wishing to acquire them will have to partner the State-owned mining entity.